No state spending cuts yet, Riley's office says

MONTGOMERY -- Gov. Bob Riley's administration is standing by its revenue estimates for next year and for now does not intend to cut budgeted spending on either the state Education Trust Fund or the state General Fund, acting state Finance Director Bill Newton said.

But Newton, Gov. Bob Riley's top budget adviser, said the administration's views could change in coming weeks or months.

Newton said the administration's revenue forecasts for the General Fund and Education Trust Fund likely won't come true in fiscal year 2011, which starts Oct. 1, unless the economy picks up and boosts collections of state levies such as income taxes and sales taxes.

"The General Fund and ETF require improvement in the state economy and the national economy to produce tax collections adequate to fund the current levels of appropriation," Newton said in a recent interview.

"The state economy is showing signs of slight improvement, and that is encouraging," Newton said. He added that "nobody" is talking now about tax increases as a way to meet revenue forecasts.

Riley's callRiley has been governor since January 2003 and must leave office Jan. 17. But the first 3½ months of the 2011 fiscal year fall on his watch, and he could impose proration, or across-the-board cuts, on either fund before he leaves office.

The Education Trust Fund is the main source of state money for public schools, colleges and universities. The General Fund is a major source of money for Medicaid, prisons and other state functions outside education.

Newton said the administration has no plans to cut budgeted spending for either fund in the remaining weeks of this fiscal year. But reaching those funds' spending targets will require strong revenue collections in this last month of the fiscal year.

Newton said the administration expects revenues to equal that amount. For that to happen, trust fund revenues in September will have to reach $602 million. They were $598 million in September 2008, but only $415 million in September 2009.

'Reasonably possible'For fiscal 2011, the administration expects trust fund revenues to reach $5.45 billion, an increase of $109 million, 2 percent, over its forecast for this year. Trust fund spending is budgeted at $46 million more than forecast revenues.

"Decision makers have the option of waiting some time to see if this (revenue) estimate is low and the economy grows adequately to overcome this deficit," Newton said. If a shortfall remains, Newton said the governor and Legislature would have to boost revenues, cut spending or both.

Sen. Hank Sanders, D-Selma, who chairs the state Senate committee that oversees the education budget, said he thinks the administration's revenue estimates are "reasonably possible."

"Just the thought of not having any further proration this year in the budget is a good feeling, and the possibility of not having it next year is a great feeling," Sanders said.

Riley on April 30 imposed 12 percent proration on budgeted spending from the General Fund this year, cutting it to $1.535 billion.

Newton said the administration expects revenues to equal that amount.

The General Fund started the year with a $105 million balance, and Riley withdrew $124 million from a rainy day account in early August.

Newton said Riley before Sept. 30 could take another $30 million from the rainy day account. Riley said he likely would. Depending on whether he does, General Fund revenues from dozens of regular funding sources, such as interest on state deposits and taxes on insurance companies, would have to reach from roughly $1.276 billion to $1.306 billion to meet this year's spending target.

For that to happen, General Fund revenues in September would have to reach from roughly $129 million to $159 million. They reached $165 million in September 2008, but only $86 million in September 2009.

Assuming no beginning balance, no tax increases and no withdrawals next year from a near-empty rainy day account, General Fund revenues from regular funding sources would have to rise by at least $265 million, 20 percent, next year to meet budgeted spending.

But the administration is counting on some windfalls to boost the regular funding sources, including:

$79 million in capital gains from the Alabama Trust Fund, a state savings account largely invested in bonds and stocks. The General Fund got no capital gains this year but has in other years.

About an extra $75 million in business privilege taxes, which would be taken from an escrow account set aside to pay potential refunds to companies disputing past payments of those taxes.

An extra $20 million from unclaimed assets, such as checking accounts and utility deposits that people have abandoned, that are held by the state treasurer.

"I would hope that their projections and their forecasts will come to fruition. But from a realistic standpoint, as I evaluate the (General Fund revenue) performance and what's been done year to date, I have some questions," said Rep. John Knight, D-Montgomery, who chairs the Government Appropriations Committee of the state House of Representatives.

Newton said next year's revenues for the General Fund and Education Trust Fund would rise if BP pays the state government for its estimated losses in revenue caused by the Gulf oil spill.

The Riley administration last month filed a $148 million claim with BP. Newton said most of any money received from that claim, and from possible future claims made by the state, likely would go to the trust fund and General Fund.

Alabama Attorney General Troy King last month filed suit against BP seeking unspecified damages, a move that Riley called premature. Riley said he believes BP would pay the state more quickly without King's lawsuit.

But Chris Bence, King's chief of staff, said, "BP should pay the claim, if it's properly documented and legitimate, but there is no guarantee that they will." Bence said the courts offer "the only guarantee that Alabama is going to be made whole."